Economist's view: Recovery faster than previous recessions, with economy now just 3.1% below pre-pandemic peak
Commenting on today’s ONS GDP figures, Nitesh Patel, Strategic Economist at Yorkshire Building Society, said:
Reopening of indoor hospitality sector in mid- May helped GDP grow by 0.8% month-on-month, which is slower than expected. That said, the economy is now just 3.1% below the pre-prepandemic peak in February 2020. This performance is quite impressive given that in January the economy was 8.7% below that pre-Covid peak and at the start of the third lockdown. This improvement has been driven firstly by businesses and consumers adapting to the physical restrictions to trade, through more online activity. And secondly the gradual reopening of some sectors has clearly boosted activity.
On current trend, it is possible that the economy could be above its pre-pandemic level in late summer. This is important because it minimises the potential long-term damage to the economy that deep recessions can bring, for example through fewer business collapses and lower unemployment. By contrast, following the financial crisis of 2007, the economy took five years to return its pre-recession level. Consumer confidence also appears to be returning and this is clear to see in the housing market where rising prices has not, as yet, deterred buyers.
However, we have to be mindful that when the furlough job support scheme ends on 30 September we could see unemployment rise which could slow this improvement. A second concern that rising prices faced by businesses – due to supply constraints and labour shortages – could feed through to higher consumer prices which could dent household finances. That said, we don’t expect a permanent rise in inflation.